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This was the question the ECB had to answer about Estonia when it instituted its Public Sector Purchase Programme with the added stipulation that bonds would be bought proportionally to each member state’s share in the ECB’s capital key.

One of the notable features of the ECB’s PSPP is that it is not buying any bonds from Estonia (the reported monthly net purchases have been zero for some time) and the cumulative purchases are disproportionately below the capital key share. For comparison, in the case of Germany whose capital subscription is €1.948bn, the cumulative PSPP purchases as at 31 January 2018 are 464bn, or 238 times the capital share. For Estonia, the comparable figures are €65m purchased under the PSPP, which is just 3.11 times the €20.87m subscribed capital. In other words, proportionally the ECB has bought 76 times more German public sector assets than Estonian.

Part of the reason for this is that Estonia’s latest debt-to-GDP ratio reported by Eurostat (for 2016) is just 9.4% compared with Germany’s 68.1%, but that only accounts for a factor of 7.2 times. The real reason is that Estonia has no government debt outstanding. That’s right: zero, zilch, nada, mitte midagi.

According to Reuters, Estonia has only ever issued one Euro government bond, a 5-year €100m issue in June 2002, more than eight years before joining the euro in January 2011. The reason for this is that Estonia has a constitutional balanced-budget rule. In addition, when Estonia became independent from the Soviet Union it pegged its currency to the Deutsche Mark through a currency board, which is only sustainable if the country runs a current account surplus. Such a surplus is necessary for Estonia’s private sector to accumulate savings if Estonia’s public sector is in balance.

If, despite Estonia’s constitutionally balanced budget, the general government debt is not zero but a bit over 9% of GDP, it must be because other parts of the public sector are allowed to indebt themselves. Indeed, the parts of the Estonian economy subsumed under the “general government” sector in the national accounts are often in deficit. In the last 36 quarters (since the global financial crisis) Estonia’s general government sector has been in deficit for 16 quarters, or about 44% of the time.

This includes regional and local government, as well as government-owned enterprises that consolidate into the general government sector. Indeed, every single bond bought from Estonia under the PSPP has been issued by government-owned utility Elering. In fact, it took the ECB three months to figure out what to do about Estonia, as for the first three months of the PSPP no bonds were bought for the country. According to the Bank of Estonia,

From June 2015 to May 2016, Eesti Pank had a special exemption allowing it to buy the bonds of the state-owned transmission system operator Elering. From June 2016 the central banks of the euro area have been able to buy corporate bonds as part of the asset purchase programme. In Estonia this means that central banks are now able to buy the bonds issued by Elering and Eesti Energia. Six euro area central banks that specialise in this class of assets have bought the bonds of the two companies, the central banks being those from Belgium, Germany, Spain, France, Italy and Finland. The Finnish central bank buys bonds issued by Estonian companies that meet the quality requirements, these currently being Elering and Eesti Energia. The Finnish central bank has been buying the bonds of the two companies since June, but the euro area central banks do not publish a breakdown of their bond purchases by company. The income and risks from the purchases of corporate bonds are shared between all the central banks of the euro area using the capital key of the European Central Bank, which gives Eesti Pank a share of 0.274%. The financial risks of the Elering bonds that Eesti Pank bought earlier as an exception are borne by Eesti Pank alone.

This means that the bonds of Elering are in the very peculiar situation of having been eligible for both public sector purchase programme, and the corporate sector purchase programme CSPP, albeit not simultaneously. It also means that, if we consider all Elering bonds purchased under either programme as Estonian general government sector bonds, then the reported PSPP holdings for Estonia under-represent the actual holdings of public sector bonds. These are still likely to be below what would be dictated by Estonia’s capital key, but not by a factor of 76.